Last week, the International Intellectual Property Alliance
(IIPA) submitted recommendations to the Bush administration in its “Special
301” review of copyright piracy and market access problems around the world.
The IIPA report recommended that 16 countries be placed on a “Priority Watch
List,” for piracy offenses. Canada,
Mexico and Israel joined China and Russia as countries severely plagued by
piracy.

“The annual Special 301 process continues to be the primary
means for the U.S. copyright industries to advise U.S. government agencies
about the principal impediments to adequate and effective protection in global
markets,” noted Eric H. Smith of the IIPA. “Many of the key markets around the
world that are infected with high levels of copyright piracy or deny effective
market access to copyright industries.”

At first inspection of the figures released by the IIPA, the
$2 billion estimated trade losses due to copyright piracy in China and
Russia are more than double that of any other nation. Smith comments, “China
and Russia are again this year the two countries that are of the greatest
concern to the copyright industries, as they were in 2006. While there have
been developments in both these key markets over the year, the bottom line is
that piracy levels have not come down at all or only marginally, and some
problems have grown worse.”

Upon further examination, however, we find that there is more
to the Priority Watch List than just raw loss numbers. For example, China leads
all nations in piracy with an estimated $2.2 billion lost due from piracy -- but China
is also the world’s most populated nation. Could it be that China’s piracy
problem is explained by its huge populace? After all, it would be easy to say
that China is the world’s biggest consumer of rice because it has the most
citizens. While China’s population has a strong role to play in the country’s
rice consumption levels, it would be erroneous to attribute the statistic to
just a single factor. There are usually several forces at play to explain
statistics, as in the example presented with China and rice, culture can be one
of them. One raw statistic alone, such as rice consumed or dollars lost, is
meaningless without context.

Taking a deeper look into the IIPA’s figures to
bring some weight and context behind its estimates show that the Priority Watch List numbers
from the Special 301 report are imperfect. Aside the fact that dollar estimates
are not an exact science, the IIPA’s lists do not include any figures for the
motion picture industry’s losses, has incomplete data for entertainment
software and books and features no data for the music industry in Canada. Out
of the five categories of copyright piracy, the IIPA only has complete data for
business software.

Plotted below is the IIPA’s estimated
total business software trade losses due to copyright piracy during 2006 against population and gross
domestic product (GDP) at purchasing power parity (PPP).

The table is sorted according to dollars lost per capita,
and it’s immediately apparent as to why the IIPA is so critical of Canada. Not
only does Canada have the greatest loss per capita at $16.78, but its citizens
also have the greatest purchasing power. While the IIPA may be concerned about
its loss per capita from Canada, the report the coalition filed expressed
frustration with Canadian legislation. The IIPA says that pirates have taken
advantage of the gaps in Canadian law to become a “leading exporter” of
camcorder bootleg movies and modchips for video game consoles.

On the other hand, China, the world leader in dollars lost
from piracy, only manages $1.68 lost per person. Of course, incidents of piracy
are likely to be spread very unevenly in a nation with huge disparity between urban
and rural areas. The IIPA also points to China as a large exporter of pirated
goods to Eastern and Western Europe.

The IIPA has spelled out exactly what it believes China must
do, including taking deterrent “criminal” actions against pirates instead of fines,
which the coalition believes are meaningless. “So far, it is clear that the
Chinese government has not devoted sufficient resources to combat rapidly
advancing Internet piracy and needs to further clarify underlying legal rules
and enforcement procedures, as well as to expand the opportunity for U.S.
copyright based industries to offer legitimate materials to the Chinese public,”
the IIPA wrote to the Bush administration.

Russia, the other leader in piracy, stays near the top of
the list with $14.80 lost. The U.S. government announced in November 2006 a joint program with
Russia to fight piracy. The IIPA acknowledges the development, but
continues its disparaging tone, saying, “Despite the repeated efforts of
industry and the U.S. government to convince the Russian government to provide
meaningful and deterrent enforcement of its copyright and other laws against
optical disc factories and all types of piracy -- including some of the most open
and notorious websites selling unauthorized materials in the world, such as www.allofmp3.com -- little
progress has been made over the years in convincing Russia to take theenforcement actions that could reduce these
high piracy levels.”

Despite Israel’s relatively low $98.4 million loss, its
smaller population results in a per capita loss of $13.86. The IIPA’s main
concern, however, appears to be the Israeli government’s inaction and
indifference to U.S. copyright laws. Specifically, the IIPA is dissatisfied
with a bill that “would discriminate against foreign producers of sound
recordings specifically, and potentially violate Israel’s bilateral obligations
to the United States.”

Mexico places fourth on the list of loss per capita at $9.25
and an overall third in terms of overall losses at over $1 billion, but even
then, the country’s ranking may be under rated. Going back to the IIPA’s 2005
report, Mexico posted the highest numbers for movie piracy at $483 million—nearly
double that of China. The 2006 IIPA report does not include any information
about motion pictures, underscoring the potentially incomplete nature of the
coalition’s statistics.

“The unwillingness of the countries identified in our
submission to curb high rates of piracy – in most countries, through more
effective and deterrent enforcement – saps the U.S. economy of the high-paying
jobs and strong growth rates that make this sector critical to the health of
the U.S. economy,” said Smith.